After months of doom and gloom in the U.S. equity markets and a virtual freefall from the highs of late 2007, this weekend I finally see something on the weekly chart of the Dow that gives me reason for optimism.  I'm not speaking of the fact that last week was the best week of 2009 for U.S. markets, though that is certainly a positive sign.  Rather, I'm speaking of the fact that the weekly Dow chart is showing a strong positive MACD divergence.

A divergence is a fairly reliable reversal signal that consists of a series of lower lows (or higher highs) in price accompanied by a failure to make lower lows (or higher highs) in a corresponding oscillator.

Taking a look at the weekly chart below, see that we hit a new low in price back in November of 2008 around 7500.  This was accompanied by a new low in the MACD.  We established a much lower low in price last week around 6500, but this low was not accompanied by a new low in the MACD; the MACD actually made a higher low - a bullish sign.

We needn't look far to find an example of a MACD divergence that successfully predicted a turn in the market.  In fact, there's one on the chart above at the peak of the bull market back in 2007 portending of the coming bear market.  The Dow made a higher high in July 2007 corresponding with a higher high in the MACD.  In October 2007, the Dow made a slightly higher high, but the MACD made a lower low, and the rest is history - we've made nothing but lower highs and lower lows since then and the index has dropped 50%.

I can't say with certainty whether the current positive MACD divergence that we are seeing on the Dow weekly chart will ultimately correspond with the end of the current bear market.  I can say, however, that it is definitely a positive sign, and it may provide a good opportunity for investors who have gotten out of stocks to start to get back in.  Only time will tell whether this turns into a true market turning point.